N.Y. insurer cries foul on city debt

Thursday

Aug 2, 2012 at 12:01 AM

STOCKTON - A bond insurer irked by Stockton's bankruptcy plans said Wednesday that the city's employees and other creditors aren't being asked to play an equal role in helping to straighten out the city's finances.

Scott Smith

STOCKTON - A bond insurer irked by Stockton's bankruptcy plans said Wednesday that the city's employees and other creditors aren't being asked to play an equal role in helping to straighten out the city's finances.

Stockton is unfairly targeting Assured Guaranty, which insures $161 million worth of Stockton's debt, the New York-based firm said in a written statement.

The firm is left paying investors upon Stockton's default of a $125 million pension-obligation bond issued in 2007.

"Chapter 9 was not intended to be used as a sword to prefer one class of similarly situated creditors over another," Assured Guaranty wrote.

The city's retired employees and labor groups disagree with how much Assured Guaranty says they've already given up and a claim by the firm that Stockton pays its police more than the market rate.

In a rare switch up, the firm's position puts fierce rivals - City Manager Bob Deis and the city's police union - on the same side in opposition to Assured Guaranty's claims.

Assured Guaranty issued the statement in response to Stockton's "ask" as the city now waits for its creditors to file their objection to municipal bankruptcy. The deadline is next Thursday.

Stockton at the outset of pre-bankruptcy mediation presented the "ask," a 790-page document, to all of its stakeholders. It spells out what the city wished each to give up in Stockton's reorganization.

U.S. Bankruptcy Judge Christopher Klein ordered that the document be entered into evidence and made public last month.

Among its offers, the city seeks to forego paying down much of the bonds issued in 2007 to pay the California Public Employees' Retirement System, which manages the city employees' retirements.

As the insurer of that bond, Assured Guaranty is responsible for paying those who invested in Stockton. The city aims to get out of paying about 83 percent of its debt.

The city should go to battle with CalPERS, Assured Guaranty said in its statement.

"If Stockton is disappointed with CalPERS' investment performance, it should be taking that up with CalPERS rather than reneging on the city's obligation to holders of the pension bonds," Assured said.

The "ask" also seeks concessions from current employees by 6.6 percent, and the city has already made retired city employees start paying for their own health care, which many had received for free.

Mark Anderson, a retired police sergeant, said he is sympathetic with Assured Guaranty. The city is failing to fulfill its promises to them too, he said.

The difference, Anderson said, is that the retirees are out health care and medicine, life-and-death necessities.

"We don't have a piece of property to have and at least sell later," Anderson said. "Once they lose their life, I can't get that back."

Assured isn't accurate in describing the city employees giving up 6.6 percent, said Sacramento attorney David Mastagni, who represents the Stockton Police Officers' Association.

Creditors like Assured haven't given up pay, such as police and other employees have for the last three years, said Mastagni, adding that they've given much more than the 6.6 percent of their compensation in the "ask."

"Chapter 9 does not allow unsecured creditors to elbow their way to the front of the line to gain a preference or to force the debtor to liquidate assets," Mastagni said.

Deis agreed, saying Assured Guaranty is only interested in getting its money and doesn't care if anarchy reigned on Stockton streets. Twenty or more police officer in Stockton's sorely under-staffed department are leaving or talking about it, Deis said.

"Assured Guaranty wants more than that?" asked Deis, who has yet to receive a counter offer from Assured Guaranty or see anything filed in bankruptcy court. "If that's not bad faith and whining, I don't know what is."